Huntington National Bank 2014 Annual Report Download - page 34

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Fully-taxable equivalent net interest income was $1.9 billion in 2014, an increase of $132.7 million, or 8%, compared with 2013.
This reflected the impact of 12% earning asset growth, partially offset by 13% interest-bearing liability growth and a 13 basis point
decrease in the NIM to 3.23%. The earning asset growth reflected a $3.6 billion, or 9%, increase in average loans and leases and a
$2.7 billion, or 29%, increase in average securities. The loan growth reflected an increase in average automobile loans, as the growth
in originations remained strong. Also, average C&I loans increased which primarily reflected growth in trade finance in support of our
middle market and corporate customers. The securities growth primarily reflected an increase in LCR level 1 qualified securities and
direct purchase municipal instruments. This earnings asset growth was partially offset by a $4.7 billion, or 13%, increase in interest-
bearing liabilities. The interest-bearing liability growth reflected a $3.2 billion, or 104%, increase in short- and long-term borrowings
and a $2.2 billion, or 14%, increase in money market deposits, partially offset by a $1.2 billion, or 27%, decrease in average core
certificates of deposit. Borrowings have been a cost effective method to fund our incremental securities growth and the change in
deposit mix reflects our strategic focus on changing funding sources. The NIM contraction reflected a 19 basis point decrease related
to the mix and yield of earning assets and 3 basis point reduction in the benefit to the margin from the impact of noninterest-bearing
funds, partially offset by the 9 basis point reduction in funding costs.
Noninterest income was $979.2 million in 2014, a decrease of $33.0 million, or 3%, compared with 2013. Mortgage banking
income was down due to a reduction in origination and secondary marketing revenue as originations decreased and gain-on-sale
margins compressed, and a negative impact from net MSR hedging activity. In addition, other income declined primarily due to a
decrease in LIHTC gains and lower fees associated with commercial loan activity and trust services primarily due to a reduction in
fees. These declines were partially offset by an increase in securities gains as we adjusted the mix of our securities portfolio to
prepare for the LCR requirements and an increase in electronic banking income due to higher card related income and underlying
customer growth.
Noninterest expense was $1.9 billion in 2014, an increase of $124.3 million, or 7%, compared with 2013. This reflected an
increase in personnel costs, other expense, professional services, outside data processing and other services, and equipment. The
increase included $65.5 million of significant items related to franchise repositioning, merger and acquisition costs, and additions to
the litigation reserves (This section should be read in conjunction with Table 8 – Noninterest Expense). Excluding the impact of the
significant items, other noninterest expense increased due to state franchise taxes, protective advances, and litigation expense.
Professional services increased due to outside consultant expenses related to strategic planning and legal services. Outside data
processing and other services increased, primarily reflecting higher debit and credit card processing costs and increased other
technology investment expense, as we continue to invest in technology supporting our products, services, and our Continuous
Improvement initiatives.
Credit quality continued to improve in 2014. NALs declined $21.8 million, or 7%, from 2013 to $300.2 million, or 0.63% of total
loans and leases. NPAs declined $14.4 million, or 4%, compared to a year-ago to $337.7 million, or 0.71% of total loans and leases,
OREO, and other NPAs. The decreases primarily reflected meaningful improvement in both CRE and residential mortgage NALs.
The provision for credit losses decreased $9.1 million, or 10%, from 2013 due to the continued decline in NCOs and nonaccrual loans.
NCOs decreased $64.0 million, or 34%, from the prior year to $124.6 million. NCOs were an annualized 0.27% of average loans and
leases in the current year compared to 0.45% in 2013. The ACL as a percentage of total loans and leases decreased to 1.40% from
1.65% a year ago, while the ACL as a percentage of period-end total NALs increased slightly to 222% from 221%. However,
criticized and classified loans did increase $95.1 million, or 7%, from prior year.
The tangible common equity to tangible assets ratio at December 31, 2014, was 8.17%, down 65 basis points from a year ago.
Our Tier 1 common risk-based capital ratio at year end was 10.23%, down from 10.90% at the end of 2013. The regulatory Tier 1
risk-based capital ratio at December 31, 2014, was 11.50%, down from 12.28% at December 31, 2013. The decreases in the capital
ratios were due to balance sheet growth and share repurchases that were partially offset by increased retained earnings and the stock
issued in the Camco Financial acquisition. Specifically, all capital ratios were impacted by the repurchase of 35.7 million common
shares over the last four quarters, 3.6 million of which were repurchased during the 2014 fourth quarter. This decrease was offset
partially by the increase in retained earnings, as well as the issuance of 8.7 million common shares in the Camco acquisition.
Huntington estimates the negative impact to Tier 1 common risk-based capital from the 2015 first quarter implementation of the
Federal Reserve’s revised Basel III capital rules will be approximately 40 basis points on a fully phased-in basis.
Business Overview
General
Our general business objectives are: (1) grow net interest income and fee income, (2) deliver positive operating leverage, (3)
increase primary relationships across all business segments, (4) continue to strengthen risk management and reduce volatility, and (5)
maintain strong capital and liquidity positions.